NSW Business Chamber’s Economic Briefing Breakfast Q&A, Sydney

QUESTION:

Treasurer, I guess the really big question for Australia is the growth rate going forward because obviously this really affects the overall position in terms of the country and the Budget and the deficit. Do you want to make any comment on that and what we can do to lift that to make sure that growth rate is three and above?

TREASURER:

Well, it has to be lifting workforce participation and lifting productivity. The workforce participation issue is a key driver. As I said, if we can get it to the same levels as that of Canada or New Zealand or a number of other jurisdictions, if we can increase workforce participation and particularly with the skill levels particularly of those who are over the age of 65 and the skill levels of women that have gone through an extensive education program, have very real and genuine and exciting experience, but then do not have the opportunity to come back in a flexible way to the workforce, then that is going to diminish our growth and diminish our jobs and prosperity. The second area is in relation to productivity. Now, you know there is a great story to be told, and it will be told and we’re going to work very hard to tell it over the next few weeks about the impact of disruptive technology on the way we live. On Boxing Day, this gentleman came up to and gave me an earful about – he owned a taxi and he said, ‘you know, I’d rather have 20 per cent interest rates than have the sort of economy that’s happening at the moment’. I said, ‘how’s Uber impacting on your business?’ And thankfully he directed his anger to Uber rather than to me, but that was the motivation and everything that governments have regulated in the past, from licenses for television, licenses for gaming, licenses for distribution, which all had significant values, have all had diminished values because new technology has come along and it’s empowered the consumer with choice that the regulated market couldn’t give, and that’s happening in shopping, in retail, quite obviously. We’re seeing people shop 24/7 but yet shops are limited in the hours that they can open because of industrial relations, because of government regulation and so on. The consumer is marching against regulation. The consumer is marching against tradition. The consumer is everyday Australians that want the best value for what they spend. Now, government has to react. We can’t be dormant. We need to react to that but we should not try and hold back the tide because the consumer – the individual Australian is more empowered now than ever before and we should celebrate that. So, that’s going to help to drive productivity. You know, I was thinking about driverless cars and they sound like an interesting novelty because when Alexander Graham Bell had a rejection letter from Western Union for the proposal of the telephone, that manager of Western Union said in the letter to Mr Alexander Graham Bell, ‘the telephone is an interesting novelty but has no future commercial value. Good luck’, and I think about driverless cars as a novelty and when I went to see my parents in their late 80s the other day, and I thought, you know, they want to stay in their home, they go and visit the doctor, they go down to the shops; the driverless car is going to completely change the way we go about aged care, about the way we age – our quality of life. And also, if you’re sitting in traffic coming from wherever it is – the Central Coast or wherever, an hour to get to Sydney, a driverless car means you can be entirely productive rather than try and have multiple hands while you’re driving to work. I mean, these things are going to change our lives; they are going to lift our productivity. So, I actually have faith that provided we continue to facilitate technology and importantly, we make sure that basic infrastructure is there, then we’re going to get that driver of growth but at the moment, it is not going to deliver the quality of life that we expect and hope for.

QUESTION:

Treasurer, [inaudible] good to see you again.

TREASURER:

Hello Joyce.

QUESTION:

I wonder whether you could just flesh out the concept of the compact between the generations? I’m going to go home to my 27 year old and 25 year old and back to the [inaudible] where we’re surrounded by young people who work in the events sector – lots and lots of young people whose future is going to be this world of doing business through live events, so I’d like to be able to say to them that this concept of the generational compact is going to be something on which we can really [inaudible] Australia’s future. So, I wonder if you could just flesh that out a little more for us, please?

TREASURER:

It is exciting that we’re going to live longer provided we have a good quality of life. The challenge now is we are so self-aware as a nation; we are so self-aware as individuals that we respond to what we know and what we know is we’re going to live longer and we need to do everything we can now to make sure that we have a decent quality of life into the future. Now, the compact between generations is something that matters most when one generation hangs around for 100 years, and, a few weeks ago I raised the issue of a child being born today, somewhere in the world that might live to 150 and of course the critics – predictable critics – came out, and Bill Shorten said, ‘well, Joe Hockey’s having a Sarah Palin moment. He can see Russia from his window.’ Well, the front page of Time magazine this month actually has the equivalent of Russia through Sarah Palin’s window on the front. It says, ‘is this child going to live to’ – I think – ‘142 or 146’, and the truth is that massive technological advancements and wonderful outcomes in health research are helping to give more affluent nations greater longevity – in fact, all nations greater longevity. Now, how do we plan for that when you have a forced retirement, or not even forced, a pension-eligibility age of 65, when people turn 65 in ten years, and then it will go to 67 under the Labor Government’s proposal, which we supported. In the Budget, we said it should go to 70 by I think 2035 – 2035. But even then, life expectancy may well be close to 80, 90, 100. So, the question is, how are we going to fund our retirement and are we going to be in a position where we are creating an environment where we are selfish, where we borrow from tomorrow to pay for today and where we leave the legacy of unsustainable demographic growth. So, the compact between the generations is to say this: our parents made enormous sacrifices for us – unbelievable sacrifices through war, depression, immense adversity. We are being asked to make sacrifices for the next generation. I don’t know about you but I’m stepping up to the plate. I feel incredibly blessed; live in the greatest country on earth. My job is to make it even better and I want to do that. That’s the compact between generations and I think Australians are ready for that and the Intergenerational Report and the number of announcements that we’ve got over the next few months are going to be directed at putting meat on the bones of that compact between generations.

QUESTION:

Hi Joe. Bruce Mackenzie from [inaudible] and the North Sydney Chamber of Commerce. First of all, I wanted to thank you for taking the capital gains off the equity and technology companies. My question today is: do you see the result in the Queensland election as a vote against privatisation? And then on the backhand of that, how do you see the New South Wales elections faring?

TREASURER:

You know, you’ve got to be a conviction politician these days and it’s hard but I tell you, it’s much easier when you wake up in the morning – much easier. You actually have to have core beliefs. Now, there were many factors at play in Queensland and many people have opined on that but Campbell Newman did have a plan to strengthen the Queensland economy. Queensland lost about 15,000 to 16,000 jobs in the last 18 months as a result of the downturn in commodities and construction of commodities resource projects – massive loss of jobs and yet they’ve started turning the corner and they’ve just elected a Premier with no plan – no actual plan for the future, which is most alarming and in Victoria, the voters never get it wrong of course, but in Victoria the new Government – Labor Government has just cancelled a project that would deliver 7,000 jobs. Six hundred people immediately lost their jobs. I mean, Mike Baird actually sees this is where NSW has to go – we’re going to do the smart thing and build the infrastructure that is necessary to do it and we’re unfortunately living in an age where it’s much easier to pull people down than to build things up. We’ve got to change that. We all have an obligation to change that and it’s going to take fearless leadership but that fearless leadership based on conviction will persuade the community. I am absolutely confident that Mike can do that and I’m absolutely confident that Tony Abbott and the team can do that.

QUESTION:

I actually might get the next question in. I’m not sure the microphone’s working here and then we will go to the back of the room but we are talking about lifting productivity, Treasurer. Is penalty rates one of those low pieces of low-hanging fruit that the government could do [inaudible]

TREASURER:

Well, no, and there is obviously a Productivity Commission review of the workplace relations system but people are marching, people are marching, consumers are marching, small business is marching. You know, all the people that I speak to that start up their own small businesses, they don’t bundy off at 5.00 o’clock at night, they don’t bundy on a 9.00 o’clock in the morning. They work as hard as they can to make it work and that empowerment of small business and the fact that people are going towards small business is going to – and startup businesses in particular – is going to drive, is going to make workplace change inevitable because those people are responding to the market. Now, as for changes in the laws. I mean, government would only ever [inaudible] catchup through industrial relations changes and we’ve got a Senate that is controlled by the Labor Party and they’re trying to hang on to yesterday rather than focusing on tomorrow.

QUESTION:

Treasurer, Susie Tegan, Medical Technology Australia. First of all, congratulations from us in terms of the red-tape reduction project. Josh Frydenberg, who’s now with you, you lucky thing, he’s been fantastic…

TREASURER:

He thinks so!

QUESTION:

Oh, does he?

TREASURER:

He’s been fantastic…

TREASURER:

He’s outstanding. He is outstanding.

QUESTION:

…at understanding what industry goes through and really working out the reduction of unnecessary duplication and costly exercises that really cripple small and medium-sized businesses, and large businesses definitely feel as well. So, my question is actually about the patent tax and whether you will be making any releases or anything in terms of reducing the taxation rate from 30 per cent to 10 per cent for any IP or patents that are kept in Australia. We’re competing with countries around the world that have already implemented this strategy. We’re losing our best ideas to other countries and we would like to keep them here, that’s one of the things that we do well.

TREASURER:

Well, that was a good pitch. Soften me about Josh and ask for a tax cut, yeah. We’re being very sparing with our tax cuts because unfortunately we haven’t got lots of money but we’ll be releasing a discussion paper on taxation in the next month or two and that discussion paper on tax won’t be the traditional discussion paper where it says to people, look, we really want to guide you towards increasing the GST or increasing company tax or cutting company tax or something, it’s going to be based on principles. Now, one of the things that people don’t think about enough is that this disruptive technology that is affecting the regulated environment, is also affecting the taxation environment and you can see that with GST. So, you ask yourself whether in 20 or 30 years’ time, there will be a GST with global, free and open trade or whether there will be company tax, given the way you have mobile capital and obviously mobile labour increasingly as a result of new technology developments. It’s also the case that I feel strongly that you should only tax people after they’ve earnt the income, not based on the assumption that they will earn the income and these are just some of the principles that are necessary to embolden and, in the case of a tax on patents, we want to remove anything that is going to actually – or reduce things, we want to reduce taxes, reduce regulation that is any way going to hamper the productivity improvements that I touched on. And of course, innovation based on integrity around the payments system is going to be a key driver of productivity into the future. I’ll just say this, there is – when people see some of the graphs in the Intergenerational Report they are going to fall off their chairs because for all the effort we’ve put in so far, and some of it has been controversial, for all the effort we’ve put in so far, we still don’t get anywhere near being able to reduce spending over the medium-term to the same level that exists today – that exists today as a percentage of GDP. So, there is a huge task that is ahead of us. If we want to remove the shackles, if we want to give people an incentive to work harder, to earn more money, to be more innovative, if we want to do that, we’ve got to start living within our means, and one of the key reasons for that is Australia imports money from the rest of the world. We don’t fund our growth, we haven’t since 1788. We’re a massive importer of capital, always have been, probably always will be. We don’t fund ourselves as a nation and if you’ve got the government and the private sector both seeking funds offshore to fund our growth, we’re in competition between each other and it’s okay now when there’s a lot of liquidity in the world but when that liquidity isn’t going to be there, as will inevitably be the case at some point, then things will change and things do change. You know, this year alone - I was told the other day – this year alone, Japan’s massive debt – government debt is about to exceed, for the first time, the pool of domestic savings and you start to think about what that means for the world – one of the largest economies in the world needing to import money; in competition with Australia. And the fact the United States imports money and a number of other jurisdictions import money for their growth, and you start to see the train coming down the tunnel at you and that’s one of the reasons why we need to have this conversation now about how we live within our means and have a sustainable future.

QUESTION:

Treasurer, Peter [inaudible] from Australian Associated Press. Just a question around taxation and the compact between generations that you discussed, particularly with the Intergenerational Report coming, when you look at the changes in the workforce, the ageing of the population and the need to look at revenue streams, why can’t you consider realistic changes to tax treatment around superannuation that might seek a realistic contribution from those who are already in the [inaudible] who are in retirement, but given [inaudible] situation they might be expected to make a contribution to the wellbeing of the Budget and the economy? Why can’t you consider some of the changes that I think have been canvassed in recent days around the treatment for retirees on superannuation?

TREASURER:

Well, we did make a pledge – we did make a pledge that we were not going to change superannuation in the first term of government. Now, why? Because the previous – every government seems to tinker with superannuation and I think people are crying out for a period of stability and predictability. Again, I’ll refer you to the Intergenerational Report and the interaction between the superannuation system and the age pension, which is very interesting and that indeed will, I think, stimulate a conversation about whether superannuation is adequate and also importantly about whether the current rules around superannuation are sustainable for the long-term, for the long-term, which in part addresses your concern. There’s no quick fix for the Budget, there’s no quick fix for the Budget. I mean, everyone says just do this on super, just do that on health, just do that. There’s no quick fix because there are structural challenges that we were left with that can only be addressed through steady and measured responses. Now, if you’re going to have change, you’ve got to have agreement and as you can see, I mean, we’re stuck with our opponents controlling the Senate and they’re determined not to agree with us. I mean, I’ve even walked around to Chris Bowen’s office and walked around the offices of other senior Members of the Labor Party and said, ‘come on, this is crazy’. I mean, on fuel indexation, fuel comes down 50 to 60 cents a litre and Labor still says it’s unfair to put a half a cent a litre tax on it in order to try and fix the Budget. The Greens that had campaigned for that actually campaigned for higher taxes on fuel are opposing it because they think it’ll cause us difficulties. You actually have to have core values here and you have to stick with your core values and either you believe that you’re going to leave a legacy where people can live within their means or you are going to be selfish and unfortunately, good politics for some people is closely entwined with self-interest and selfishness. And the most selfish thing we could have done last year is do nothing. We could have done that. The most selfish thing we could have done is taken the approach of the new Labor Government in Victoria and the new one in Queensland and just oppose everything and say, ‘we’re opposing everything, we’re not going to do anything, elect us’. And people might have elected us and people might have supported us, we might be more popular than we are today but we cannot be selfish if we care about our country; if we care about our people. The fundamental challenge is how do we make sure that we actually leave a legacy where the nation lives within its means. Now, we’ve come some way. Contrary to some commentary, we’ve come quite a way actually as will be revealed in the Intergenerational Report but we’ve still got a long way to go. And obviously, the conversation with the Australian people over the next few weeks and months will inevitably lead to further debate about various initiatives that will help to fix the Budget but most importantly, make sure that we live within our means into the future both collectively and as individuals.

QUESTION:

[Inaudible] Tim Williams, Chief Executive of the Committee for Sydney. Can I welcome your emphasis on a compact – an intergenerational compact, and suggest there might be another compact, which is between the feds and state government on the management of our cities. Sydney grew by four per cent GDP last year and the nation grew by 2.5 per cent and I think we contributed about [inaudible] per cent of tax [inaudible] to the federal government. Do you think there’s enough focus on your thinking on the future of our cities?

TREASURER:

When it comes to people contributing tax, I must say I’m not in any way being disparaging but I must be collecting a hell of a lot more tax than what Treasury is telling me because everyone says they pay a lot of tax. I would say to you, we don’t run cities – the Commonwealth Government, but what we do is help to facilitate growth in partnership with the state governments, that’s what my Asset Recycling Program is about, because I’m providing a $5 billion incentive to the states to sell assets and redeploy it into productive infrastructure. The states are the ones that actually rollout infrastructure. The federal government is not very good at it; exhibit A, the National Broadband Network – that didn’t go too well, and we’ve cleaned it up. Malcolm Turnbull’s done a terrific job cleaning it up but it’s not our core capability as a federal government. Most of our money is spent on day-to-day bills as a federal government, whereas with the states, a huge chunk of their budget is on infrastructure – schools, hospitals, roads, police stations, electricity, etc. etc. Now, the deal that I’m announcing with a state Labor Government today involves us giving them money in return for their sale of assets and that money is being deployed into public transport – public transport, which is run by the states. Now, I have no control over the proposals put forward by the states and it’s not for me to discern whether it’s the right public transport option or not but, but, we are prepared to put our money on the table to help to fund it because it helps to improve the productivity of that city or that state or that territory – that’s one way of doing it. Another way is through good macroeconomic policy and micro if you like as well, and that’s what we’re trying to do – look at ways that we can provide incentives for growth, provide flexibility for workforce participation and importantly what we can do to help to lift overall productivity because that’ll help the states in turn because if the economy grows, they get a better flow of revenue, particularly out of the GST and then that gives them a greater capacity to be able to respond to the immediate needs of their cities and their regions as well. Thanks very much.